2.0

Geek-Run, Geek-Funded Venture Capital Fund

In Uncategorized on June 21, 2006 at 10:00 pm

Author: Marc Fawzi

Twitter: http://twitter.com/#!/marcfawzi

License: Attribution-NonCommercial-ShareAlike 3.0

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(This post was last updated on June 22, ’06, taking into consideration early input from the community, which you can find under Comments.)

For a while now, I’ve been toying with the idea of starting a cooperative venture capital fund where smart, sophisticated people (aka business geeks, e.g., ex Technical Directors, ex Chief Architects, ex CTOs, ex CEOs et al) come together to launch ideas into market.

For example, for Web 2.0 ideas, if we could have a large crowd of Web 2.0 business geeks then it would be quite possible to conduct private placements under an SEC securities law safe harbor for non-accredited –but sophisticated– investors (i.e. business geeks who could judge the risk associated with a given venture/idea that’s within their domain of expertise) such that we could seed the fund as a community. Those who participate would then collectively have as much power as any VC.

Obviously, this requires the involvement of a legal counsel who would structure such a cooperative venture capital fund, so that it would comply with securities law and state regulations. Luckily, I have access to lawyers who work for private equity (PE) investors, as well as enlightened, accredited investors who may see the value in supporting it. But this is not about starting yet another VC fund. This is about giving power to the entrepreneurs, just like how the Web has given power to the producer and caused the middleman to adapt and innovate.

The VC industry is another socio-economic structure that will have to undergo a radical rethinking in the years to come (as the newspaper and the music industry are doing now) or risk losing in the long run. In this context, the fund would be a grassroots remaking of the early-stage funding process. In certain cases, the fund would partner with traditional VCs during the later stages of the ideas it launches.

The driving motivation is that a truly cooperative fund could be launched, supported and managed by a community of business geeks and angel investors that is much more grassroots in its makeup, scale and orientation than the current attempts, but still led by folks with experience and track record. The thesis is that such fund could serve the needs of the community on much wider basis.

It’s definitely a good idea to look at what others, such as YCombinator, have done and improve on that, as I see many ways in which such funds can help a lot more entrepreneurs and launch more ideas while retaining quality of ideas and execution.

But we’ll get to work on that as soon as I setup a collaboration space for us to use in developing this “Geek VC Fund” idea.

In the meantime, please feel free to add your feedback under Comments.

Tags:

Web 2.0, Web 2.0venture capital, venture capital, VC, entrepreneur, funding, private equity, YCombinator, geek, seed funding, early stage, Startup

  1. How much have you dug into this idea so far? Do you have a sense of how you envision the group would divide up the allocation of resources and the “carry” on the returns? What kind of oversight and monitoring do you envision? Would the cooperative bring in outside resources such as executive coaches and such? Have you floated it with potential LPs?

  2. Hi Nathan,

    It would serve us all to add any expertise and knowledge you or others may have to the process of defining and managing a truly cooperative venture fund, for entrepreneurs and by entrepreneurs [angels, and other desired participants.]

    The process will include drafting the mission statement and deciding on the details in a collaborative setting.

    Since this is a community project, I'm committed to building a community that will launch, manage and support it.

    I'll setup a wiki to allow us (business geeks, angels, entrepreneurs) to come together as a community and contribute our experience and knowledge to the process.

    Marc

  3. Hi Marc,

    I think is an execellent idea.. there is a lot of talent that are not financing a project because they don’t have all the compentences, enough time or enough economical resources…

    If comunity puts together all this talent and resources,… there is something that can be done.

    I’m sure that there are plenty of dificulties at legal and organizational level, but this are also competences that must be required to manage this kind of fund.

  4. The traditional VC format is changing rapidly due to the bootstrap phenomenon. While the big guys will remain, smaller VC firms with smaller $$$ to manage and ‘real’ value to add are the logical survivors.
    In addition, Ycombinator and efforts like this will bubble up from within the tech/engineer community.
    This idea has legs but will require some level heads and a failure or three.
    Hang in there.

  5. I think this is the way it should work – similar to Paul Graham/Tim O’Reilly/et al’s Y Combinator. They are focused on making very early stage investments at very low valuations, which makes sense for people with no savings, less so for those who’ve been working for a while. Their Startup School conference is great (or at least this year’s Palo Alto version was).

  6. I like the idea a lot. But, I think it’s going to be tricky to find the right structure and ensure that the interests of both sides are taken into account (both the LPs in the fund and the entrepreneurs being funded).

    Look forward to seeing this evolve.

  7. I like the idea of a collaborative venture capital community.

    If you had people who could contribute in different ways sort of like an open-source project, that would be kind of cool.

    The problem that I see with this type of arrangement however is that it only seems to work during an up cycle.

    If the market for Web 2.0 companies were to collapse, are the people involved really going to want to spend their time making the hard choices on which services to cut and who’s job gets eliminated?

    I think not.

    So, while this type of organization sounds very attractive during an up cycle, I don’t see it working during a down cycle (and there is sure to be one!).

    But if you believe in it, go for it!

    Simon :)

  8. Hi Simon,

    It's another one of those "non-literal" arguments.

    I tend to see psychology when most people see logic, in this case it is "market psychology."

    I believe a collaborative, grassroots driven ("open source" like) fund like this would influence the psychology of the market in positive ways, and that's what those behind this fund would like to accomplish, i.e. to influence the venture market positively, and materially benefit many entrepreneurs in the process, and not to literally replace VCs. Although the VC industry would take notice and hopefully be influenced by it/learn from it.

    Thank you very much for stating your view here.

    I believe there will be great benefit for all.

    Marc

  9. Dear Marc,

    Cool!

    One suggestion, rather than structuring it like a fund, you may find it easier to fund projects on a deal by deal basis.

    This would allow people to pick and choose the deals that they invested in giving them more freedom and choice.

    Raising a fund can be tricky.

    It is very abstract and most investors prefer the sense of security they get from investing in a specific deal.

    There are also time pressures associated with investing in a fund which you would not have if you raised money on a deal by deal basis.

    Good luck!

    Simon :)

  10. Great idea! I’ve worked both as a PE investor and entrepreneur, and based on my experience, I think the greatest need is in the following areas:

    1) true seed stage funding (i.e. $25,000-$1 million) — the shift in fund sizes has made this area very attractive and underserved
    2) geographically distributed focus (i.e. not just Silicon valley) — there are a lot of interesting startups that absolutely cannot get seed capital outside of silicon valley
    3) underserved industry focus (i.e. not just web 2.0 photo/video sites) — e.g. consumer healthcare plays, new types of games, energy management software, etc.

    I’m on the East Coast, and would be happy to help organize on this coast.

  11. Dear Simon,

    As always, thank you for your kind and encouraging remarks.

    I'll keep you posted on our progress.

    Marc :)

  12. Hi Realguy,

    Thank you for your support of the idea and for lending your insight.

    I’m working to get the right folks (on the PE/VC/angel side), such as yourself, to come together in one place to kick off the dialog about the fund.

    Marc

  13. Dharmesh,

    As you know from my postings on your site, my "theory of everything" boils down to having choices and striking a balance.

    Thank you for your support of the idea and your insight.

    Marc :)

  14. Hey,
    I like this idea. Has there been any companies yet you’ve tried this on?

    Harshal.

  15. Very nice idea. We are in a time of major flux, and the process of funding opportunities needs to evolve accordingly. I sense a clear realization on your part that the actual color of Venture Capital is no longer: “Tangibly Green” and “Intangibly Grey”. The “Grey” color scheme (Open Source Technology with deal specific distribution terms, loosely coupled development and business development / marketing teams) is rapidly becoming more tangible as a result of the “network effects’ of the ubiquitous Web.

    I am certainly interested in this effort.

  16. Hi Kingsley,

    Thank you for your support of the idea and your insight.

    I’m working on it :-)

    Marc

  17. Sounds like a great idea.

  18. Sounds really interesting. I work in finance and such a fund could be interesting. You would have to be careful about volatility, since technology funds are volatile, not as much as energy, but still volatile.

  19. Hi range,

    Thanks again for your comments and insight.

    We’re working on a well thought out and carefully planned model.

    Marc

  20. We are assembling a fund like this to mass produce solutions to ecological challenges, and are seeking experienced PE investment managers. Here’s a one-page summary of our strategy:
    http://ecostructure.us/Docs/Ecostructure_Summary.pdf

    Mark Winstein
    President
    Ecostructure Financial
    Ecostructure Capital LLC
    116 E 3rd St
    Suite 212
    Moscow ID 83843
    mark [at] ecostructure.us
    208-596-6500

    Ecostructure Financial: http://www.ecostructure.us
    Ecostructure Capital LLC: http://www.EcostructureCapital.com

    “Focus on Ecosystems”

  21. My name is Ribuala, I am 15yrs.I am doing a general finding out on blogs related to your theme.I have found yours most interesting. I would always like to give my opinion on matters I found on your blog. Is that ok? I like your blog.

  22. Sure. Feel free to. There are other contributors of the same age as you are. I’m not surprised that this blog is appealing to fresh minds. (fresh makes fresh) LOL.

    Marc

  23. great idea Marc. Those expert geeks could judge the ideas and the risks and likelihood of success – within their areas of experience / skill.

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